Potholes In Their Arguments

For folks with sensitive stomachs, I’d advise that you do not read the “Working Paper” named How Large Are Global Energy Subsidies? It was produced by the IMF [the “I” stands for “International” and most folks know what a “MF” is] as part of the media blitz in preparation for the upcoming quackathon in Paris, the 21st IPCC Climate Gabfest and Conference of the Partygoers. The Working Paper has attracted all kinds of alarmist headlines. The Guardian says “Fossil fuels subsidised by $10 million a minute, says IMF – ‘Shocking’ revelation finds $5.3 trillion subsidy estimate for 2015 is greater than the total health spending of all the world’s governments” … YIKES! One thing is clear from all of the ranting—those folks think energy subsidies are a baaaad thing.

Now, this is a curious point of view, since the Guardian and their friends are 1000% behind subsidizing renewables, particularly renewables that don’t work … go figure. But since the renewables are trivially small players in the global energy game, this report is about subsidizing the energy players who actually, you know … produce energy in significant amounts. That would be the evil oil and coal and natural gas companies. As a result, in the world of the Guardian, such subsidies are bad by definition.

So like an idiot, I decided to explore their Working Paper. Hey, I’m a fool for punishment, and I like to go where the map says “Terra Incognita” … but in the event, this wasn’t pleasant.

I’m sure most folks have heard of a “cost/benefit analysis”—you draw a vertical line down the middle of a piece of paper. On one half of the page, say the right hand side, you list all of the costs of the item in question. And on the left hand side of the page you list all of the benefits of the item in question. Figure 1 shows one of the earliest known examples of a cost/benefit analysis:

Figure 1. One of the most ancient cost/benefit analyses known to historians.

What the IMF has done is rip the paper vertically along the line down the middle, handed us the half with the costs of the purported “subisidies”, and claimed that it is a proper analysis. It is not. It is a list of wildly exaggerated costs, and costs alone.

Now, let me be clear about my biases. I have no inherent problem with subsidies. We subsidize all kinds of activities, we just need to pick the right ones. And I have no problem with cost/benefit analysis. It is a very useful tool.

But looking only at costs and ignoring the benefits? That is not an analysis of any kind.

But wait, it gets much, much worse. Allow me to give you the short version of the IMF Working Paper. First, to set the scene, here is their abstract (emphasis mine):

This paper provides a comprehensive, updated picture of energy subsidies at the global and regional levels. It focuses on the broad notion of post-tax energy subsidies, which arise when consumer prices are below supply costs plus a tax to reflect environmental damage and an additional tax applied to all consumption goods to raise government revenues. Post-tax energy subsidies are dramatically higher than previously estimated and are projected to remain high. These subsidies primarily reflect underpricing from a domestic (rather than global) perspective, so that unilateral price reform is in countries’ own interests. The potential fiscal, environmental, and welfare impacts of energy subsidy reform are substantial.

As you can see, we’re already into specialist jargon. No problem with that, all specialties have jargon. In their world, “pre-tax energy subsidies” means money that flows to the company or industry or activity that is subsidized. More generally, pre-tax subsidies are subsidies that actually affect the bottom line of the balance sheet of some limited subset of economic actors. In other words, “pre-tax energy subsidies” are what most of us think of when we hear the word “subsidies”.

What these good folks refer to as “post-tax energy subsidies”, on the other hand, are not subsidies in the usual sense. They are not money that flows to the energy companies at all.

To highlight the difference, let me give you a crystal-clear example of what the IMF considers to be a “post-tax energy subsidy” to the evil oil industries … but first I am obliged to warn you that like I said, this stuff is not for the lily-livered or the faint of heart. So I’ll offer you one last chance to avoid spoiling your digestion … any takers? OK, for those remaining hardy souls, one of the IMF’s many, many “post-tax energy subsidies” is …

The cost of fixing the potholes on the road to my humble abode.

Truly. I’m not making this up. Pot-hole repair is part of their “post-tax energy subsidy” that they claim is going to the energy companies. It’s listed under the rubric of “non-carbon externalities”.

And what are “non-carbon externalities” when they are at home? I thought you’d never ask. Fortunately, they give examples, viz:

“(congestion, accidents, air pollution, and road damage)”.

In the strange IMF parallel universe, the cost of fixing each of those (including “road damage”) is considered as a SUBSIDY TO EXXON AND SHELL! Fixing potholes as a subsidy to the energy companies! Have you ever heard such a daft thing?

So let me engage in a bit of technical jargon here myself. I’m going to refer to those subsidies that flow only to energy producers and distributors and that affect the bottom line of those subsidized producers and distributors as “real energy subsidies”. It’s a catchy name, I like the ring of it, cuts to the heart of the matter.

And for things like say claiming that fixing potholes is a subsidy to the energy industry? Well, for those types I’ll use the term “imaginary energy subsidies”, it’s short and to the point.

As for the relative size of real and imaginary subsidies, the big headline news from the paper has been making its way around the web under headlines like “Energy subsidies are $5.3 trillion dollars per year!” Well, let me point out that their number is ninety-four percent imaginary energy subsidies, and is only six percent real energy subsidies. Strange but true. Like I said, I’m not making this up. Heck, I couldn’t imagine this level of absurd venality. I’m just yr. intrepid explorer hacking my way through miles of verdant verbiage in my quest to uncover the truth … and when I get there, I find that the truth is six percent, and the made-up is ninety-four percent. Figure 2 shows the ugly claims …

Figure 2. From the IMF Working Paper. Note that while real energy subsidies have been steadily decreasing, imaginary energy subsidies have been steadily increasing. Alarmism, anyone?

Well, now I finally understand why there are so many potholes in the roads around where I live. I’ve been thinking all along it was because, as one of our County Supervisors remarked, the county can’t fix the potholes because they’ve gone broke paying for the obscene pensions of one generation of the folks who used to lean on the County shovels and prop up the County keyboards.

But now, I see that is not the case at all. My eyes have been opened. Leaving the potholes unfixed isn’t a sign of economic malaise. Instead, it is a bold political statement by the County Board of Supervisors! Not fixing the potholes is a clever means to reduce the dastardly “post-tax energy subsidy” that the Country residents have foolishly been paying to Exxon and Shell! It’s a daring blow against the running dog imperialists of global energy supply … do I really need to supply the [/sarc] tag? I suppose so …

Honestly though, folks, if you’re going to count fixing potholes as a subsidy to the oil companies, then $5.3 trillion dollars is nothing. They can go as high as they wish, that’s the beauty of imaginary energy subsidies. There’s no limit to them.

But wait, there’s more. Even though the real energy subsidies are nowhere near the five trillion mark, they are still at around $340 billion per year. That’s a third of a trillion, real money in any world. But of course, once again things aren’t at all what they seem.

The first thing you need to understand about this $340 billion in real energy subsidies is that globally, the largest energy subsidies are those that oil-producing countries like Venezuela and Nigeria give their own citizens by charging them below-market prices for gasoline and diesel. The second thing you need to know is that most of the real energy subsidy is in the developing countries. In a previous working paper about subsidies that I analyzed here, I find:

According to estimates by the International Monetary Fund and International Energy Agency, global “pre-tax” (or direct) subsidies for fossil energy and fossil electricity totaled $480–523 billion/yr in 2011 (IEA 2012b; IMF 2013). This corresponds to an increase of almost 30% from 2010 and was six times more than the total amount of subsidies for renewables at that time. Oil- exporting countries were responsible for approximately two-thirds of total fossil subsidies, while greater than 95% of all direct subsidies occurred in developing countries.

If we’re talking about most folks reading this, those of us in the developed world are only are involved in a measly five percent of the real energy subsidies … which in turn are only six percent of their notional $5.3 trillion in subsidies. This five percent of the $340 billion dollars is about $17 billion dollars. But that’s still not the whole story. Remember, that’s split out between all of the developed nations, Australia, Japan, US, UK, Germany, Israel, New Zealand, the list is long.

So when you get down to it, if you are living anywhere in the developed world, the real subsidies given to the energy are likely around half a billion dollars per country. Actually, speaking of technical jargon, I call a half-billion dollar subsidy “one Solyndra” … but I digress …

Now, if your country is paying one or two Solyndras per year in subsidies, is it worth it? Well, that depends on what the Solyndras are paying for. If they are paying for renewables, it’s most likely not worth it. If they’re paying for real energy, it might be worth it.

Let me close by pointing out the effect of cutting energy subsidies. Since most of them are in developing countries and are in the form of reduced energy prices to the poor … won’t cutting them harm the most vulnerable citizens?

Well, fear not, the International MoFo’s have thought of that. Here’s what they say about the effects of cutting fuel subsidies to the poor … one measly sentence is all they could spare for the impoverished, maybe there’s an electron shortage or something, but in any case here is that lone sentence in all of its glory:

In addition, energy subsidy reform should protect the poor and vulnerable, making sure their well-being is not adversely affected.

That’s it. That’s the full extent of their concern for the poor. Well, that’s good to know … but if you yank a $1 per gallon gasoline subsidy out from under the poor of Nigeria, just exactly HOW do they propose to make sure that “their well-being is not adversely affected”? That’s what I despise the most about these arm-chair experts who propose to restructure the world economy to fit their fears and fantasies. They simply ignore anything that they judge to be immaterial, the poor are often the first on that list, and second on the list of things they ignore is HOW to do what they so airily propose.

Anyhow, that’s the latest wild exaggeration on the run-up to Paris. My advice? Don’t believe anything you read … and remember, you read that here first …

Best wishes to all,

w.

As Per Custom: If you disagree with someone, please have the courtesy to quote the exact words you disagree with, so that we can all understand your objections.

Externalities: Things like fixing the potholes or releasing CO2 into the atmosphere are termed “externalities” or “external costs” by people writing on cost/benefit analysis. These are basically things that either the writer really doesn’t like, or things the writer would like to tax but hasn’t been able to figure out how to tax it. Yet.

While occasionally such externalities are relevant, I have some big objections to including externalities in most cost benefit analyses.

First, how do we price them? What is price we should assign to, say, of a ton of emitted CO2? I’ve seen numbers ranging from zero up to hundreds of dollars per ton. With no agreed upon value, the analyst is free to pick any number they like.

Next, which ones do we include? If we include fixing the roads as a “subsidy” to the oil barons, shouldn’t we include building the roads? And if we include the cost of building the roads, how about the cost of designing the roads? And what about the cost of the pensions of the legislators (never cheap) who authorized the road-building? Where does it all end? Clearly the IMF thinks it ends after potholes, not before …

Finally, if you include external costs, YOU ABSOLUTELY MUST INCLUDE EXTERNAL BENEFITS. As I discussed in Monetizing the Effects of Carbon, the increase in plant growth due to increased atmospheric CO2 is about a $300 billion dollar per year benefit to the world’s farmers from burning fossil fuels … but the pluted bloatocrats at the IMF ignore that completely, as they ignore all benefits they don’t like.

Oh, snap! Someone has previously commented on this in some trivial blog somewhere, no point in me adding anything, guess we can all go home now. The internet is finished.
William, you are famous for manipulating facts and rewriting history on Wikipedia. Why would anyone pay the slightest attention to your blog?
w.

Willis,
Go easy on Bill. Even he recognizes that his only audience are like minded folks who already believe what he believes, RE this line “As you see, pre-tax subsidies, which I’m sure we can all agree are definitely naughty”
Having nothing more then the echo of his own voice, he can’t help but be a bit pathetic and lay claim to the honor and the glory of blogging about this topic before you.

Willis, I went and looked at Billy the kid, obfuscator extraordinaire, article and it was a joke. He didn’t clarify the issues at all, but I wasn’t surprised, he is after all the obfuscator extraordinaire and now it looks like he is one of the trolls.

William Connolley
May 29, 2015 at 12:17 pm
“… Ignorance of prior art is part of what’s holding you lot back.”
==============
Holding us back from what ?, please tell us.
As you must know… we await the word from on high.

Thank you for the informative and entertaining essay Sir.
One question right off, although I am not sure anyone can peer into the inscrutable minds of the whack-jobs that dream this stuff up: Why is fixing potholes not a subsidy to the auto and truck manufacturers instead? If the made those darn things lighter they would do less damage.
Or to get a little more accurate in the finger pointing, why should not the makers of tires shoulder the burden of these phantom payouts? They should make them softer. For that mater, maybe we should really be blaming the makers of the air compressors…if they were not so strong, he tires would be softer and do less damage.
Although I suppose when it comes right down to the chemistry and physics of the matter, maybe we should blame the purveyors of the road salt.
Or whatever genius decided to make water expand when it froze…that is the real culprit here.
And if it were not so dang cold every winter, there would likely be few if any potholes on a well built road. (We have about zero of them here in SW Florida)
So really, it is the fault of the cold.
Maybe we could figure out a way to warm up the planet, and put an end to this ruinous expense altogether.

Willis, I would add to the benefits side and extra 30 years of life, and an additional 5 billion humans. At the peak of the coal age around 1900 life expectancy in the developed world was around 48 years old and the aggregate population that could be accommodated was about 2 billion souls.
Without the age of oil, we ALL would be a lot poorer and a lot fewer, and would not live as long.

Anyone (Connolly)who would go and deliberately corrupt Wikipedia as is was working fine is indeed a criminal. This is like tearing pages out of encyclopedia books when you don’t like the truth or burning books which do not contribute to your personal financial gain.

From Energy Probe executive director Lawrence Solomon wrote in December 2009:
“Connolley took control of all things climate in the most used information source the world has ever known – Wikipedia. Starting in February 2003, just when opposition to the claims of the band members were beginning to gel, Connolley set to work on the Wikipedia site. He rewrote Wikipedia’s articles on global warming, on the greenhouse effect, on the instrumental temperature record, on the urban heat island, on climate models, on global cooling. On Feb. 14, he began to erase the Little Ice Age; on Aug.11, the Medieval Warm Period. In October, he turned his attention to the hockey stick graph. He rewrote articles on the politics of global warming and on the scientists who were skeptical of the band. Richard Lindzen and Fred Singer, two of the world’s most distinguished climate scientists, were among his early targets, followed by others that the band especially hated, such as Willie Soon and Sallie Baliunas of the Harvard-Smithsonian Center for Astrophysics, authorities on the Medieval Warm Period.
All told, Connolley created or rewrote 5,428 unique Wikipedia articles. His control over Wikipedia was greater still, however, through the role he obtained at Wikipedia as a website administrator, which allowed him to act with virtual impunity. When Connolley didn’t like the subject of a certain article, he removed it — more than 500 articles of various descriptions disappeared at his hand. When he disapproved of the arguments that others were making, he often had them barred — over 2,000 Wikipedia contributors who ran afoul of him found themselves blocked from making further contributions. Acolytes whose writing conformed to Connolley’s global warming views, in contrast, were rewarded with Wikipedia’s blessings. In these ways, Connolley turned Wikipedia into the missionary wing of the global warming movement.”
– See more at: http://newsbusters.org/blogs/lachlan-markay/2010/10/21/wikipedia-bans-radical-global-warming-propagandist-editing-all-pages#sthash.hE3Xnw28.dpuf
[Only 5428 articles? .mod]

From Wikepedia: “The same paper noted a 2009 Wikipedia arbitration in which it was concluded that Connolley had used administrator privileges to his own advantage in content disputes, and these privileges were removed.[26]”
Absolutely funny!
[26] Mathieu O’Neil: “Shirky and Sanger, or the costs of crowdsourcing”. Journal of Science Communication, Vol. 9, Issue 1, March 2010, International School for Advanced Studies

Obama is incapable of manipulating the UN – he simply shares the basic Marxist philosophy used by most of the UN members. In the IMF, the US has about a 17% vote compared to China’s 4% – that at least is based on some rough analysis of size of economy and, more importantly, IMF required contributions. China is simply working to slowly expand its influence and, quite logically, is doing so by attempting to create an alternative world currency to the dollar and alternative international organizations outside the US’s influence. It’s what any good competitor does when the market leader gets fat and lazy.

I have strong doubts that Obama is capable even of manipulating himself.
And China is not acting in protest. They are acting in their own perceived best interests, one of which is to provide an alternative financing center.

They are acting in their own perceived best interests, one of which is to provide an alternative financing center. Yes! and if they can they will replace the dollar with the yuan as the world currency.

Traditional energy companies pay taxes. It is not a subsidy if they are paying fewer taxes than you think they should be paying. Don’t let them corrupt the language as much as they’ve corrupted the science.

Rob, Excellent point, I have pointed out this big lie to many in the past. Even Democratic politicians like Pelosi makes that claim. Unfortunately we cannot stop the lies from the left with a complicit media.
Here is an old statement that has become so true today.
“Any dictator would admire the uniformity and obedience of the U.S. media.”
Noam Chomsky
Bob, excellent post.

” It is not a subsidy if they are paying fewer taxes than you think they should be paying.”
‘Zackly!
Anything that is not a cash payment is questionable as to status as “subsidy”.
One has to believe that every cent earned by anyone is the rightful poppety of the gubnamint in order to believe this.
I do not consider my tax deductions to be subsidies.

Rob Dawg
May 29, 2015 at 10:36 am
“Don’t let them corrupt the language as much as they’ve corrupted the science.”
They (statists/leftists) corrupt the language to make their foregone conclusion appear as if it were a rational argument. But it doesn’t MAKE it a rational argument, and worse, they make the language itself useless for further rational reasoning. They’re lying to themselves, and will end up in a hole, no longer capable to get out of it by themselves. To which extent even the higher ups in the leftist chain of command have already corrupted their own thinking skills is unknown but I hazard a guess: Not to a small extent. They are blinding themselves. Evil, meet Stupid.

nearly $1000 for every man, woman & child on the planet.
==============================
that is the end game. to take $1000 from every man, woman and child on the planet in the name of saving the planet.

It appears adblock plus has sold out. I suggest installing uBlock. Easily switched on and off. That way, leave it off so WUWT can still get much-needed advertising revenue, turn it on for the occasions when it gets distracting. Everyone’s advertising will be different, nothing to do with WUWT. A lot to do with your location, your own browsing habits, and how often you clean out your cookie list.

The issue of “big oil” checks is clearly nonsensical dribble. I will believe there is such a thing as a suspicious funding when the evidence is presented. The claim is that billions of dollars being spent of misinformation campaigns and the claim is that this irregular financing is all well documented. I want the documents.
That said, and to be honest, considering the traffic this website gets, advertisements should yield significant revenue. The claim that this blog is held with stitches is one of those things that makes very little sense about this place.

Mr. Eschenbach – Your writing style is most admirable. Getting your point across while injecting humorous word play is akin to how my feeble mind operates – not that I imply yours is feeble, by any stretch! – but the gist appears to be that the MSM will pick this story up and spread it far and wide (like liquefied manure), and those reading the pap in the papers/electronic media will assign all of the subsidies you describe to the “Evil Fossil Fuel Consortiums” and the perpetuation of ill-informed voters will march forward. Fossil Fuels subsidized to the tune of Trillions! will be new battle cry, coming to an editorial letter to the Editor of the local news source near you. Where I live in California North (Western Washington State) it is an uphill, constant battle for Hearts & Minds. You voice is a beacon in the (green) darkness, and I thank you once again.
Regards,
MCR
Washington.

You needn’t feel ashamed. The IMF report produced by ecostitutes. The cashiers in grocery stores, along with my cat are much closer to being economists than the people producing this sort of disinformation are.

That won’t wash. The credentialled economics profession is responsible for the work of its own members, If they are acting unprofessionally, it should do something about it, or deservedely forfeit respect.

Phil you do realize the the “economists” in academia, at the fed, at the SEC, at Standard and Poors whether Republican or Democrat didn’t find anything alarming at all about the derivatives market that unleashed the most crazy set of circumstances where we didn’t even get the satisfaction of the brokers jumping out the windows to their demise on Wall Street but instead getting millions in bonuses?

Fossilsage,
At the risk of saying something unpopular, everyone who took out a liar loan, or bought above their means, or borrowed money they knew (or should have known) they could not pay back shares an equal portion of the blame, IMO.
It appeared to me that almost the entire world went crazy, including large numbers of people fully aware that tulip bulbs should not cost ten years pay apiece.

Coulda sworn the imaginary subsidies were 97%.
As a resident of a pothole state, I know it’s winter cold mostly causing them. So in a warming world there will be fewer potholes. Sounds like this paper might actually be subversive.

The fact is, however, that the U.S. oil companies already pay more than “their fair share” in taxes (Fig 1,2), sending more dollars to Washington, DC and state capitols than they earn in profits for shareholders. ExxonMobil, for instance, has been paying $3 in taxes for every $1 in profit, $1 trillion in taxes from 1999-2012. Remember 2008, when West Texas Intermediate crude averaged a record $100? Yeah, well, ExxonMobil’s tax bill hit a whopping $318 million per day.
Oil companies’ income tax expenses as a share of pre-tax profits have been around 40%, compared to other S&P Industrial corporations (~27%). Oil companies pay a higher effective tax rate than even the highest corporate marginal income tax rate of 35% because they are also paying state and foreign income taxes, and there are royalties, bonuses, bids, excise taxes, and other transfers to governments often forgotten. The oil E&P majors have higher effective tax rates than other top firms. And the key factor in tax avoidance is being able to shift profits into tax havens. Oil companies lack this ability because their value comes from tangible natural resource endowments, unlike those with more intangible assets, such as software and pharmaceutical companies.
ExxonMobil paid twice the income taxes that Apple did, despite typically having about a third of the profit margins (Fig 3). And at $755 billion, Apple’s market capitalization is now more than double that of ExxonMobil. Meanwhile, ExxonMobil is the largest domestic producer of oil and gas, pumping out 1.3 million barrels of oil equivalent per day. Domestic oil and gas production is pretty important: oil and gas are 65% of our energy. In contrast, for Apple, as The New York Times recognized back in 2012:
“Almost all of the 70 million iPhones, 30 million iPads and 59 million other products Apple sold last year were manufactured overseas.”http://www.forbes.com/sites/judeclemente/2015/05/25/support-your-local-oil-and-natural-gas-company/?utm_source=followingimmediate&utm_medium=email&utm_campaign=20150525

JT
Thanks for the accurate information on how much tax Exxon Mobil pays and it’s just a part of all the revenue the Treasury collects when one considers all the oil companies such as Chevron, Conoco Philips, Shell, etc . This information refutes the constant lies put out by the liberal tax loving politicians and the MSM. How would the liberals replace all these revenues if they kill the fossil fuel business.
I cannot recall that any industry has been so attacked by our government with programs subsidizing it’s competition (biofuels, electric cars, etc) while requiring the oil industry to incorporate a competitive fuel in the product they sell (Ethanol).
Ethanol producers are like a leach by getting the government to require mixing their product in our fuels, and being unkind to their host constantly extract more blood through their Lobby.
The fact is that the oil/gas business is a high tech business that has applied technology to constantly discover and recover energy reserves from often harsh environments. Remember all the robots used in the deep off shore drilling.
Kill the profits and the oil companies and the Government will kill the constant improvements in energy discovery.
One should also study the history of how the oil business as a group played a significant role in winning WW II by developing technology to meet the needs of the US air force to maintain air superiority by providing high octane gasoline. We might need that capability again.

I live in New Zealand and the government dominated electricity industry was force 15 years ago to include wind power into it generation mix by a bully Government that banned thermal generation and jaw boning.
The wholesale price of power has remains stubbornly at a fraction of the price of wind generation but prices to consumers have more than doubled.
Smells like a hidden subsidy and remains a massive downward pressure on employment growth and low end wage rates.
Its always the poor that pay for the wet dreams of the ruling class.
Never trust a left winger on 10x the national average pay rate!

One of the very largest Externalities is imagined, but unprovable “Health Issues” caused by Burning Fossil Fuels.
Obama, the EPA, the UN and the IMf are all using it as it is impossible to disprove, just as it is impossible for them to prove it.

I have strong circumstantial evidence that the emissions from fossil fuels is not only healthful, but essential to human life.
Note the direct relationship between fossil fuel use per capita and longevity.
The correlation is plainly evident…higher emissions equals longer life.

“But looking only at costs and ignoring the benefits? That is not an analysis of any kind.”
This is exactly how it works much of the time in politics, government and ideologies that present only one side and in fact, subjectively and intentionally apply the anti scientific method. Have a conclusion, then find as much supporting evidence as possible to support it, while ignoring anything that contradicts it.
Sad thing is that this is how climate science is defined today.
Can you imagine Michael Mann or President Obama giving us the beneficial side of increasing CO2?
Carbon pollution is what CO2 is and those that don’t agree are “Deniers”
Sunshine + H2O + Pollution + Minerals = O2 + Sugars(food)
Very interesting how we never hear about how all that “pollution” is causing a booming biosphere/vegetative health, record crop yields/world food production and that most creatures on this planet are benefiting.
Tell just one side and disregard all evidence that suggests there’s another side(debate is over, science is settled).
This is a marketing scheme not the scientific method.

the math goes like this …
Oil company spends $100 to drill an oil well … if that $100 had been taxed by the government the government would have gotten $35 dollars … so “allowing” the oil company to expense the $100 the government is “giving” the oil company $35 in “subsidies” …

“Oil company spends $100 to drill an oil well … if that $100 had been taxed by the government the government would have gotten $35 dollars … so “allowing” the oil company to expense the $100 the government is “giving” the oil company $35 in “subsidies” …”
What are you smoking? Oil company spends $100 to drill an oil well… Drilling a well is an expense. Even I’m allowed to deduct expenses from my taxable gross profit. It is not a subsidy. That “cost” is passed onto the end user of goods and services. So, you want to do away with business expenses and have the government tax gross revenue? Fine by me, but guess who will end up paying for the tax – the end user of goods and services.

Of course fixing potholes is a subsidy to the oil companies.
Luke Skywalker had a landspeeder back in the 1970s. I saw it on the screen. He didn’t need to worry about pot holes.
Obviously Big Oil is keeping it down with the help of the Koch Brothers.
Well done to Lord Stern for finding this conspiracy.

There is no reason what to ever to consider EV do not create ‘potholes’ in the exact same way any other car does , has these are a product of road use regardless of the means of propulsion.
Meanwhile not that long along greens groups where moaning like hell about any reduction in tax taken from fossil fuels , becasue these taxies where massive net contributors to governments . And the loss of this cash would mean having to cut back on other services.

Actually EVs do not create potholes. Most potholes emerge after winter; the rougher the winter the greater the number of potholes. Snow melts, seeps into cracks in the asphalt and concrete, refreezes and breaks it, but most importantly, the snow plows come along and the blade pops those chunks right out. Voila: pothole. And, of course, spreading salt on the roadway accelerates the process.
Now, the thing with an EV is that the first time the new owner uses it to commute to work, or pick Johnny up from school, in a snowstorm they’re going to get stranded when the EV doesn’t get them home. You see the owner won’t factor in the additional current draw from the electric heater set at full blast and the electric defrosters to boot, the electric seat heaters, the electric windshield wipers slapping time, the electric windshield washers clearing the dirty slush off, the electrically heated rear window and mirrors, not to mention the electric headlights and the significantly increased travel times in stop and go blizzard traffic conditions. And, since the owner won’t, and can’t factor in this 85% reduction in range (before an 8-12 hour recharge) they’ll give up driving in a snowstorm after the first miserable experience of freezing in the stationary dead EV (like all the other EV owners) for 10 hours waiting for the EV snowstorm rescue crews. Thus, in an EV saturated environment the highways of this great nation will be completely empty hours before so much as a single solitary flake of snow falls. And, they’ll be empty for weeks afterwards. And, the financially strapped states and municipalities will look at this development and go, “cool, we don’t have to plow and salt the streets anymore.” Therefore, potholes, if not totally ceasing to exist, will at least be substantially diminished in numbers. All thanks to the EV.

If only we could find a way to warm up the whole planet, we could eliminate these potholes.
Hmm, maybe if we give a bunch of money to some companies so that they will extract carbon containing minerals from the Earth, we can burn them and maybe that will warm things up.
We will need to give them a lot…say, maybe 5 trillion or so a year, and do it for years on end, all over the world.
That oughta get things cooking, right?
Aah, forget it, I was just talking off the top of me head.
Imagine if I came to believe such a thing with absolutely no evidence?
Crazy.

Here in Florida, they are almost nonexistent. Roads have to be built to a certain standard of course. If they are not designed for the weight loads placed on them, they can fail.
And any structure is going to need periodic maintenance, particularly under conditions of heavy usage and intermittent stresses.
We get holes here, but usually at the edges of turns on smaller streets where the pavement blends right into grass. Either that or if there is subsurface subsidence, or water movement washes away the underbedding.
Holes do not spontaneously form on well built roads without previous damage.

There’s an additional external cost due to fossil fuels that also must be considered as a subsidy. I’m surprised they haven’t thought of it. It’s Social Security. As increasing numbers of Baby Boomers retire the current smaller number of workers paying into the Ponzi scheme will be unable to sustain it. The balance sheets will soon fall into the red. I have little doubt that the lopsided ratio of current workers to retiring Baby Boomers is due to the fact that a significant number of those Boomers were conceived in the back seats of subsidized fossil fuel burning automobiles that traveled to their subsidized forest preserve breeding destinations on subsidized asphalt roadways.
And let us not forget the subsidized public education system that educated those swollen number of fossil fuel subsidizedly bred Boomers.
And then there’s the subsidized external costs of nationalized health for those aging fossil fuel subsidizedly bred Boomers.
And there’s also …

And let us not forget the subsidized public education system that educated those swollen number of fossil fuel subsidizedly bred Boomers.
yes, a lot of good stuff came about after we had defeated the beastly Hun.

“[I]f you yank a $1 per gallon gasoline subsidy out from under the poor of Nigeria, just exactly HOW do they propose to make sure that ‘their well-being is not adversely affected’?”

The problem the poor have is not that energy costs too much; it’s that they don’t have enough money to pay for it. Those are different things. The currently poor would come closer to having enough money for energy if their governments left in their hands the taxes that now go to paying the subsidies–and let those now-better-off citizens individually allocate that money’s expenditure in a utility-maximizing fashion.
If they still need money after lower taxes and less price distortion improve their economy, that’s what welfare systems are for.

This is the saddest part of the whole thing. The Elite know that only the marginally existent middle class in most countries will suffer from subsidy elimination, the poor and desperately poor won’t even notice. It is, as has been repeatedly said, all about subjugation. “You will do things as we say!”

industry has the problem that oil costs too much. a poor government cannot afford welfare in the sense it is provided in the developed world. the best welfare system for them is to provide jobs, and not through government. ie industry needs growth.
having said that, there will always be a large portion of any tax that will be sucked up by the administrators of the funds, whether that be by corruption directly or just committee-creep, so the return to the people is ALWAYS on a negative slope. the longer the tax is in place, the less funds will be available and what is left might not be assigned to the correct recipients.
a fine example of this is the fuel excise on diesel fuel here in Australia. initially the fuel excise was introduced specifically for the costs associated with roads/transportation. the tax did NOT apply to industries that did not use the roads eg agriculture, mines etc where the fuel was for internal processes.
all good until later the fuel excise started to be more used as general income, then the green groups start their usual lies about mining companies being subsidised (fossil fuel subsidy) because they dont get charged the excise. of course they dont mention the purpose of the tax, just that mining companies dont pay it. strangely they dont mention agriculture, maybe because they dont even know the truth of why the so called subsidy exists.
in the end it is hard for any government, even the right side of politics, to work around the green lies that the media love to spread, and we will probably end up with that tax applied to everyone. ie its purpose is not what is important, just that it should exist.

Joe, I think you have confused the idea that ordinary people are paying for these subsidies because governments are taxing them to give money to energy companies. Not so.
The IMF analysis is attempting to calculate subsidies given to consumers of energy (including poor people the world over) because governments are not able or willing to tax consumption of energy at what the IMF thinks is the full cost to society.
The solution the IMF authors are proposing is to tax energy consumers (individuals and companies). With a wave of the hand to “protecting” the poor they are proposing impose new taxes on nearly everyone on earth.

The meme that speculative externalities are an indirect subsidy to fossil fuel companies has long been a theme of greenie groups. It serves as a smokescreen to hide the actual subsidies renewables are getting. (Which also have their own externalities.) The meaning of this report is that greenie extremism has infected another supposedly sensible mainstream institution. The World Bank was last year’s victim.

This introduction says it all about the misguided agenda of the IMF and the crowd massing in Paris to tell us how we should live, be fed, and keep warm. . Better yet if they looked in the mirror and admitted all the taxpayer subsidies, carbon footprint, waste of fossil fuels these hypocrites are wasting to travel there and bask in luxury with no benefit whatever to anyone except themselves. Would these resources be better spent to help the poor? In general I am opposed to subsidies because they inevitably involve government corruption and “payola”, look at Ethanol! Now they are not even honest about what a subsidy actually is.
It is not difficult to see the agenda within the introduction below, and it is not good for the “common” man
“I. INTRODUCTION
The issue of energy subsidy reform remains high on the international policy agenda,
reflecting the need for countries to pledge carbon reductions ahead of the Paris 2015 United
Nations Climate Change Conference, the opportunities for reform created by low energy
prices, and continuing fiscal pressures in many countries. The sustained interest in energy
subsidy reform also reflects increasing recognition of the perverse environmental, fiscal,
macroeconomic, and social consequences of energy subsidies:
2
 Energy subsidies damage the environment, causing more premature deaths through local
air pollution, exacerbating congestion and other adverse side effects of vehicle use, and
increasing atmospheric greenhouse gas concentrations.
 Energy subsidies impose large fiscal costs, which need to be financed by some
combination of higher public debt, higher tax burdens, and crowding out of potentially
productive public spending (for example, on health, education, and infrastructure), all of
which can be a drag on economic growth.
 Energy subsidies discourage needed investments in energy efficiency, renewables, and
energy infrastructure, and increase the vulnerability of countries to volatile international
energy prices.
 Energy subsidies are a highly inefficient way to provide support to low-income
households since most of the benefits from energy subsidies are typically captured by
rich households.”

A lot of people benefit from roads, but these maroons actually think that the oil companies and the oil companies alone should be paying for those roads.
Any who, aren’t most roads paid for by gasoline taxes? So in what sense are the users of oil not paying for the maintenance of roads?
Beyond that, last time I checked, those magical electric cars also use roads. So aren’t they also being subsidized?

At least electric cars can run on the existing roads without expensive modifications to those roads, save perhaps the odd charging point or two. Plus the electric car driver still needs a licence, which can be taken away if they start to abuse the privelege.
By contrast, cyclists demand a costly scheme of nationwide road modifications which serve no purpose to anyone other than cyclists, and expect that the public should pay for that out of road fund taxes, to which they themselves contribute nothing. Plus, the cyclist needs no licence and no training or proficiency test, and is therefore at liberty to flout the law with little risk of being banned from the road. Most operate uninsured, so if they do cause third party injury there is little chance of compensation for the victim. As if that were not enough in the way of special priveleges, they then start brazenly stealing the space allocated to pedestrians for their own, selfish use.
There was a case in the papers a few days back in which a cyclist riding illegally on the footway mowed down a 3yo toddler, swore at her, then rode away. It will be interesting to see if he gets an appropriate punishment. I would not be at all surprised to see him given a trivial fine and allowed to keep on riding. A car driver in similar circumstances would be banned for at least a year, and would likely have to retake a driving test before going back on the road.

“post-tax energy subsidies, which arise when consumer prices are below supply costs plus a tax to reflect environmental damage”
So the logic is: if environmentalists have proposed a tax on fossil fuel, and the tax has not been passed, then fossil fuels are being subsidized.

As usual a well written analysis. I am continually surprised how normally well regarded organisations can produce such unbalanced drivel.
The fundamental truth is that if fossil fuels are taxed more, the relative cost of renewables will fall. Even assuming that the total output of renewables would be sufficient to supply market demand (questionable), the cost of energy to the consumer would rise. Normal economic theory suggests that increasing costs in an economy without increasing output simply reduces the standard of living/growth.
Increased energy costs would have their own externalities impacting health, agriculture/food supply, transport and distribution, unemployment, welfare costs etc. A belief that the additional taxes raised from fossil fuels could somehow redirected to largely balance these externalities would be truly naive.

“The fundamental truth is that if fossil fuels are taxed more, the relative cost of renewables will fall”
No, isn’t a fundamental truth or a truth. It’s an hypothesis based on how little fossil fuel renewables use.

Well regarded organisations produce biased drivel all the time, we just don’t notice when we agree with their objectives.
For genetic reasons, truly rigorous balanced analysis is abnormal in human discourse.

I need to call up the DOT in my state and counties where I have oil royalties and explain to them that they must be making a mistake. You see, for some reason I get billed each year somewhere around 4% directly from local governments and it explicitly lists county maintenance as one of the taxes. They must have it backwards, I shouldn’t be paying them because all their services are subsidized. This is even on top of the hefty property taxes and fees on each DOT commercial vehicle that is required for oil and gas exploration. I can’t wait for the refund.

Thanks for an interesting article on the total global sea ice coverage, William. However, I fear I don’t see the relevance to the current discussion, or how that means that Mr. Taylor “got there ahead” of me. You sure you’re in the right thread?

Ignorance of prior art is part of what’s holding you lot back.

There are two curiosities about that statement. The first is that your link to “prior art” takes us all the way back to ten days ago …
The other curiosity is that for a couple of decades, the alarmist, record-distorting climate view that you exemplify so well has had everything going your way. For a long time, you’ve had the support of the media, and of the governments, and of the universities and rent-seekers, a host of green and green-washed corporations, and of everyone who thinks that humans are a virus on the planet or that development is bad.
Not only that, but as we know and as the Climategate emails revealed, the leading lights of the climate alarmist movement acted in secret behind the scenes to subvert the IPCC rules, forestall public enquiry, pack the peer-review boards, and illegally avoid FOIA requests.
And despite that huge, monumental advantage you’ve had since the beginning, despite the fact that Peter Gleick and others were willing to lie, cheat and steal to push your message, despite your ruthless Wikipedia censorship of any opposing views, you guys STILL can’t convince either the American public or the world public that the the climate issue is of any real-world importance. Climate regularly comes in last on the list of things that people care about, and that is even more true in the developing world. Check out the UN opinion poll. Increasingly your alarmism isn’t working anywhere except among folks like true believers, Hollywood spokesmodels, residents of ivory and other towers, Eurotrash, and California nuts and flakes. The rest of the planet is unwilling to trade your brimstone threats and your honey-coated promises for more expensive and more unreliable energy, and I don’t blame them one bit.
In fact, these days studying the failure of alarmist climate scientists to convince the public has become a cottage industry. It seems like every few weeks Judith Curry publishes a new explanation of why you guys have not been able to get your message across.
And of course, you personally have been publicly disgraced by being discharged from Wikipedia because of your bitter unending partisan edit wars … you lost that battle royally.
And despite all of that, despite years of not getting your message across to the very people you want to convince, despite being kicked off of the Wikipedia airwaves, now here you are to advise us regarding what we’re doing wrong? Really? You’re the expert now on how it all should be done?
Gotta say, William, I almost have to admire your nerve and audacity … but instead any admiration gets drowned out by my laughter at you thinking you’re the man to advise anyone. Sorry, gotta pass on that one …
w.

Surely the economic benefit of plant growth from extra CO2 goes mainly to consumers in the form of cheaper food? The other main beneificiaries, I presume, are subsistence farmers, who have more to eat for themselves and their families.
If there was less CO2 food would be more expensive for consumers, which would mainly harm the urban poor, and subsistence farmers would go hungry more often and starve to death more often, but commercial farmers would benefict from scarcity pricing. The exception would be commercial famers on marginal land who might not be able to grow a viable crop, but I would have thought that marginal land is more likely to be occupied by subsistence farmers in any case.

Finally, if you include external costs, YOU ABSOLUTELY MUST INCLUDE EXTERNAL BENEFITS. As I discussed in Monetizing the Effects of Carbon, the increase in plant growth due to increased atmospheric CO2 is about a $300 billion dollar per year benefit to the world’s farmers from burning fossil fuels … but the pluted bloatocrats at the IMF ignore that completely, as they ignore all benefits they don’t like.

For example, how many lives are saved annually because fossil-fueled ambulances rush trained EMTs and Paramedics to injured or critically ill people and then transport them back (over roads, sometimes even having to dodge potholes) to hospitals where more highly-trained people can provide specialized urgent care? Hmmmm? I agree a solar-powered Star Trek transporter would be better, but development seems to have stalled — should we leave people to die in the meantime?
The “external” costs of fossil fuels are affordable because an industrial society using mechanical energy instead of muscle power produces plenty of surplus to cover those costs and still have enough left over that people can enjoy a better material standard of living throughout a longer life.
Any business understands that increasing your costs by 25% in order to increase you income by 500% is such an obvious good deal that only a certified moron in the throws of a major convulsive fit would turn it down.

I’m still unclear about what is being included in these fossil fuel energy subsidy figures. In the case of renewables we at least know what subsidies are paid and how they relate to expenditure and production.
In the case of electricity, for countries using mainly fossil fuel or nuclear supplies the bulk of the cost is in maintaining the distribution system, not the energy cost itself. UK wholesale power being about 4.5-6p per unit for fossil fuel sources, maybe 8p for nuclear, as compared to 13-15p per unit retail. I don’t have wholesale figures for Germany or Denmark to-hand but it would be interesting to compare the wholesale/retail ratio for a country using a large proportion of renewables.

Declining not. Subsidies for renewable energy are increasing at a mind boggling rate, from $66 billion in 2010 to $101 billion in 2012. I wonder where they stand today. And that for incentives which we can all agree are definitely naughty.

(with apologies to The Beatles)
I read the news today, oh boy!
4000 holes in Blackburn, Lancashire
And though the holes were rather small
They had to count them all
Now they know how many holes it takes to subsidise the Albert Hall
Willis, excellent smackdown, WWF style. An easy calculation as to benefits – if the costs are 6% of global GDP, then benefits are 94% (it is a logical fact that, if every possible negative internality and externality and his dog is excised from the global GDP and counted as a summed 6% cost, then everything that remains must be a positive externality, or benefit). Even Adam would have gone back for a second apple with that ratio.

This is very much like the attitude of a marketing manager I knew who became responsible for sales and service.
He questioned me about the expenses of my service division and wanted explanations for being over budget on particular lines. These were higher as we were producing more revenue from service and there were consequent expenses attached to this.
Even though we were making more profit than budgeted, his focus was on the expenses only. In marketing he never had to worry about revenues, only expenses and so this was his prime concern.
The IMF ‘analysis’ may have been produced from people who do not have to live in a world with both sides of a budget.

I examined a similar report a few years ago and it was the same crap – almost all the “subsides” were actually bread and circuses for 3rd world citizens who’d likely riot without them.
Laughable developed world “subsides” included the US Strategic Petroleum Reserve without which I’m pretty sure every American would spend their days perched on a toilet bowl worried where their next meal was coming from.
I got to a section where they mulled if the construction of natural gas-fired power plants was subsidized since their design was similar to taxpayer-funded military jet engines. I stopped reading there; not wanting to hog so much precious laughter for myself.
Impressive to see that even the WikiFiddler crawled out from under his rock for this hilarious IMF garbage.

Great how Willis listed ‘real energy subsidies’ and I was dutifully reading along and them WHAM – the punch line of ‘imaginary energy subsidies’. I didn’t see it coming and it hit me like a truck. My 1st good laugh of the day.

What I don’t like is how when I buy a few gallons of gas, a fair chunk of that sale goes to subsidize the state and federal governments, who then turn around and tell me Texan floods are my fault for burning that gas.
Then when my state doesn’t do exactly what Washington says, they threaten my state with some sanctions, such as not returning to my state the highway repair funds they previously confiscated that were meant to fix all those potholes and rebuild deteriorating roads (no doubt caused by ‘climate change’ – sarc off).
MFs!

“Why didn’t the IMF also add the cost of all the climate change research as a subsidy to the oil industry?”
Beats me, Chris. I guess they couldn’t think of everything. But now that you’ve brought it up, we’ll probably see it in the next go ’round.
Oh… I’ll have to see if kitchen sinks are in there. Wouldn’t surprise me if they were.

I assume they forgot to include the tax on fossil fuels that offsets or overwhelms the subsidies as well.
Nigeria may pay some of the cost of the petrol pump for its citizens but most Western Countries have a big fuel tax instead.

Hmmm. Still waiting for the Connellyweasel to reply to Willis’s hammering. Won’t hold my breath. Where’s what-his-face to criticize Willis in a sort of inscrutable way? Good ol’ Scrotum or whatever of few choppy words having little or no meaning. Mods, help me, you know who I mean.

Good article, as always, greatly informative. Thankyou Willis!
One minor fact correction on ‘Adum’s Kost Bennyfit Analysus’ – sex was already part of the plan before Adam ate the apple!
Genesis 1:28 (i.e., before the Adam and Eve story which is chapter 2 onwards) “And God blessed them, and God said unto them, Be fruitful, and multiply.”

Thanks, oneils. I haven’t a clue about the history of the stoat’s comment. I dealt with the comment exactly as I found it.
However, I’d trust a “screen capture” from William Connelley as much as I’d trust a Wikipedia edit from William Connelley … and that is not at all. As Megan McCardle commented on another climate miscreant, Peter Gleick,

After you have convinced people that you fervently believe your cause to be more important than telling the truth, you’ve lost the power to convince them of anything else.

And Connelley has convinced me.
Be clear. I’m not taking sides. I’m not saying the comment was or was not changed, by Connelley or anyone else. He may be totally correct.
I’m simply saying that anyone who puts the slightest credence in any word that comes from Connelley’s pen is not following the story.
w.

oneills, I went and took a look at the weasel blog. I couldn’t find any “screen capture” of Connelley’s post. Instead, I saw some text that Connelley claims was what he wrote … but all we have is his unsupported word that he did so.
Like I said, I don’t know the truth in this case, I don’t have a dog in the fight, and William may be 100% correct. I’m just saying, anyone who is considering taking William Connelley’s unsupported word for whether it’s raining outside should insist on first taking a look out the window …
w.

“Thanks for an interesting article on the total global sea ice coverage, William. However, I fear I don’t see the relevance to the current discussion, or how that means that Mr. Taylor “got there ahead” of me. You sure you’re in the right thread?”
So are you now claiming you didn’t make this comment? (quoted above)
It’s pretty obvious that a different link was there for a while, as you answered that link. Not the Forbes link (which for whatever reason is now combined with your own reply to that different link).
Not exactly sure what’s going on here, but it sure looks suspicious at the WUWT? end of things.
So if William posted the correct link (Forbes), someone at WUWT? changed the link (to the one you answered originally), and then the link has subsequently been returned to the Forbes link by someone at WUWT?
Either that or someone has hacked WUWT? Which I doubt.

“Thanks for an interesting article on the total global sea ice coverage, William. However, I fear I don’t see the relevance to the current discussion, or how that means that Mr. Taylor “got there ahead” of me. You sure you’re in the right thread?”

So are you now claiming you didn’t make this comment? (quoted above)

Say what? Where did I ever claim that I didn’t make that comment? This is why I ask people to quote what you object to. Yes, I made the comment that you quoted … but then I never denied making it, so why is that a question?
w.

This meme of huge subsidies is well established throughout the
“progressive” culture. But ask them a simple question such as “How are they subsidized?” and you’ll get vague comments about tax breaks for the rich.
I find the lack of knowledge on the subject of AGW appalling. Most have no idea about how much it has warmed and when. Almost none have even heard of the idea of feedback from increasing CO2.
So these made up statistics work there wonder on lazy reporters and uninformed citizens.
So the EPA will trot out some fantasy if a study about the health affects of the carbon economy and, voila, a subsidy is born!

Let’s properly count externalities. Potholes occur even for pure non-polluting electric cars. Air pollution is heavily regulated, which costs industry lots of money for scrubbers etc. Not external. Windmills and solar take up lots and lots of land for themselves and for extra transmission lines.
Positive externalities: steam engines were even dirtier and tended to explode. Fact is, the implication of the IMF report is that we should be only using imaginary sources of energy, and we should feel guilty about that. Why do they hate fossil fuels? What kind of crazy is this?

Willis
I really enjoyed your economic analysis of the IMF estimate of the costs. The IMF costs are really a justification for the bill being handed to the developed nations to redistribute their wealth to use as they see fit by taxing fossil fuel users. I wonder when they will figure out that the tax on carbon doesn’t cover the cost of the oxygen atoms and will require a surtaxes for tying up the oxygen too. I have noticed that it is getting harder to breathe. Good job!

Willis,
You are correct. Reading the paper is painful. I stopped when I got to the spot where, just after presenting a summary of their findings, the authors say:
“These findings must be viewed with caution. Most important, there are many uncertainties and controversies involved in measuring environmental damages in different countries—our estimates are based on plausible—but debatable—assumptions.7 The estimates of the environmental, fiscal, and welfare impacts from eliminating energy subsidies are based on a partial equilibrium analysis: demand responses are based on long-run estimates of own-price demand elasticities for energy products thus abstracting from transitional dynamics and cross-price effects among fuels, and there is an implicit assumption that supply prices do not adjust in response to demand changes. Linkages with the broader fiscal and macroeconomic system are also ignored.”
The first sentence and the last say it all.

Willis: Thanks for taking the time to prepare this useful post. However, I do wish you had said more about Pigovian taxes, which lie at the heart of the IMF’s analysis. What you call “imaginary subsidies” and the IMR calls “post tax subsidies” are actually the ABSENCE of a Pigovian tax on fossil fuels. Using proper terminology usually makes things clearer. All economists agree that the free market is less efficient when distorted by negative externalities – any costs or damage (frequently environmental) associated with the production of goods not borne by the consumer. Many economists believe it is more efficient to place a tax on those goods equal to that cost or damage rather than attempt to solve the problem by regulation. Negative externalities don’t have to be environmental; there are large negative externalities associated with roof-top solar panels, not to mention the government subsidies that reduce their cost. However, the IMF paper doesn’t mention this problem.
Mankiw, a former economic advisor for Bush II, makes a realistic case for applying a Pigovian tax to carbon dioxide emissions at the link below. He notes, however, that estimates of the social cost of carbon vary by a factor of 10 (mostly depending on discount rate), making it difficult to choose a Pigovian tax rate. And he admits to knowing nothing about the uncertainty associated with climate sensitivity, which probably adds another factor of 10 to the uncertainty. Most importantly, Mankiw recognizes that Pigou’s concept is not understood by voters or accepted by politicians as a sensible method for setting policy. Perhaps it should be – IF any group could be trusted to quantify negative externalities.http://scholar.harvard.edu/files/mankiw/files/smart_taxes.pdf
The fallacy of the IMF paper is that Pigovian taxation is not used by any government! We do have user fees, such as the gasoline tax that supports highway construction, but those taxes do not cover other negative externalities. We have sin taxes on alcohol and tobacco, but they are not chosen based on the estimated cost and damage society suffers from their consumption. Instead, we subsidize some politically preferred alternatives (wind and solar), but not others (nuclear and hydro). In the EU, politically-disadvantaged businesses are required to purchase emission permits from a “free market” whose price is manipulated by speculators and by governments issuing free permits to politically-preferred organizations and . The IMF economists are discussing a fantasy world where the absence of a Pigovian tax – something that no government uses today – is a government subsidy. If the IMF economists wanted to be helpful, they would point out the economic insanity of our current programs and offer a Pigovian alternative – without pretending its absence is a subsidy.
Another problem with the IMF paper is that they don’t discuss any of the uncertainties associated with social cost of carbon. The earlier IMF paper they cite (Parry 2014) simply says:
“The volume does not add to the contentious debate on climate damage but simply uses an illustrative damage value of $35 per metric ton of CO2 (US Interagency Working Group on the Social Cost of Carbon, 2013), combined with data on the carbon content of fuels, to derive carbon charges for all countries.”
Most than half of the subsidies they report arise from this one number, for which they provide no justification and no discussion of uncertainty.

Willis: Thanks for taking the time to prepare this useful post. However, I do wish you had said more about Pigovian taxes, which lie at the heart of the IMF’s analysis. What you call “imaginary subsidies” and the IMR calls “post tax subsidies” are actually the ABSENCE of a Pigovian tax on fossil fuels.

Thanks, Frank. Yes, I know that. I also know that another name for “Pigovian taxes” is “taxes that the author hasn’t been able to get imposed yet but would sure like to because he thinks the activities are bad and wrong”.
Why is it that Pogovians are always talking about “climate damages” of CO2 but never the climate benefits of CO2? The increase in fruit and vegetable growth from the fertilization effect of the increase in atmospheric CO2 is on the order of $300 billion dollars. If you want me to pay a Pigovian tax to the government because of claimed “climate damages”, shouldn’t the government pay me for the corresponding climate benefits???
The truth regarding CO2 is that people are just picking imaginary numbers to quantify imaginary damages … but they, like you, never seem to get around to quantifying very real benefits. How much is an extra ice-free week worth for all of the northern European ports combined? How much is the longer growing season worth in terms of additional crops? Where’s my cash reward for creating that with my CO2 emissions? And when are the alarmists going to notice that a cost/benefit analysis is pure carp unless it contains as much depth on the benefits side as on the costs side?
The world wonders …
Finally, anything that increases the cost of energy including Pigheadedovian taxes further impoverishes, weakens, injures, and in some cases kills the poor. Such a tax is the most regressive tax imaginable, because there is no escape from it at the bottom end of the economic scale. Quite the opposite. The rich don’t care much about an increase in gasoline costs, it doesn’t affect their lives.
But for the poor single mother of two who depends on her car to get to work, such an increase may mean that her kids don’t eat, or get their teeth fixed on time …
If you want to fight CO2, Frank, that’s OK with me. But fighting CO2 on the backs of the poor by means of a carbon tax is reprehensible.
w.

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